American and One World Alliance “Wins” Bankrupt Japan Airlines Prize

Monday’s announcement that American Airlines and One World Alliance had won the battle of Japan Airlines – keeping JAL from switching to the Sky Team – ended months of speculation about whether another major airline would shift allegiance and upset the Airline Strategic Alliance Balance of Power.

A different result could have destroyed the Open Skies Agreement between the US and Japan. For one thing, protracted anti-trust litigation fueled by American, British Airways and Qantas opposition – would almost certainly have held up any attempt by Japan Air Lines to switch to the Delta led alliance.

What does the decision mean for US Corporate Travelers?

In the short run, the status quo will be maintained.

First off, American Airlines and other One World Alliance frequent fliers can breath a sigh of relief. A reallignment of allegiances in Tokyo would have dealt a major blow to interline traffic, ticketing, frequent flier mileage redemption opportunities and revenue flow for the entire alliance.

Looking five years down the road, JALs decision to maintain financial independence may allow management a wider range of alliance options if it can reverse its financial fortunes. And the Japanese government has at least temporarily prevented the American Carriers from pumping more than $1 Billion into the flailing, failing carrier.

Delta, following its acquisition of Northwest last year, acquired a major Trans-Pacific presence with the Northwest mini-hub in Tokyo. All Nippon Airways is poised to become the largest carrier in Japan. ANA’s participation in the Star Alliance may spur healthy competition in the US-Japan markets for at least the next five years. With three major alliances in the mix, there should be at least some pressure on pricing, which bodes well for consumers.

Business Week’s Justin Bachman concluded, “…No matter how much airlines contend such alliances are for customer service, they truly are about carrier finances.”

Bachman also observed that the rejection of overtures from Delta and the Sky Team Alliance was more likely a result of the inability of JAL’s new management to restructure during bankruptcy AND switch alliances at the same time. Switching alliances is costly in many ways, including physical costs required to make a change as well as significant losses of customer loyalty.

One wonders where already shaky US Carriers planned to raise the kind of money they were offering in support of JAL, but fortunately, the Japanese government has nixed the possibility. US shareholders and passengers should be grateful! Why fight to purchase an interest in a bankrupt airline with too much capacity, a moribund route structure, huge liabilities, and customer service ill suited to the international marketplace?

Delta, still feeling the logistical challenge of integrating Northwest into its vast network, has a gaping hole which resulted from Continental’s defection to the Star Alliance last year.

Continental Abandoned Sky Team in 2009

Unwilling to serve as the “Junior” US Partner in the Sky Team Alliance, Continental’s bolted to the Star Alliance carriers, even though it competes with its new partners on most International routes. Continental has been quite forthcoming about the costs of switching alliances, and has been investing heaving in educating its frequent fliers about the benefits of booking Star Alliance flights. Switching to Sky Team would have cost JAL a fortune, and would have further eroded market share.

Japan Airlines’ new Chairman, Kasuo Inamori, faces a wide range of challenges from within his company, from his government, and from the marketplace. Forced to maintain unprofitable routes by the government, JAL has been hemorrhaging cash. Many International Flights have lost lucrative business class travelers, perhaps scared away by the impending bankruptcy.

A Recent Flight Experience

On a mid-January flight from San Francisco to Tokyo on JAL’s flagship flight 001, we found the business class cabin half empty. Inflight service appeared to be geared exclusively toward Japanese passengers, reflecting a regionalism inappropriate in a global economy.

True, JAL had just finished installing new business class seats and a premium economy class US carriers haven’t matched. But while Western menu choices were in short supply, we found business class service and catering to be sorely lacking. Served all at once, (see below) our transpacific dinner (see below) looked and tasted like a coach meal rather than an international business class meal.

We didn't think much of JAL's Inflight Service

Only time will tell whether JAL can become a truly vibrant global force. Maybe the change of management will help; installing an outsider to lead the recovery certainly couldn’t hurt.

In the meantime, unless there’s a significant cost savings, your Summit Team recommends that you consider another choice for your Pacific travel.